Southwest Airlines 2003 Annual Report Download - page 24

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domestic market has continued to increase, it is not currently possible to assess the ultimate impact of all of
these events on airline competition.
The Company is also subject to varying degrees of competition from surface transportation in its
shorthaul markets, particularly the private automobile. In shorthaul air services that compete with surface
transportation, price is a competitive factor, but frequency and convenience of scheduling, facilities,
transportation safety and security procedures, and Customer Service are also of great importance to many
passengers.
Insurance
The Company carries insurance of types customary in the airline industry and at amounts deemed
adequate to protect the Company and its property and to comply both with federal regulations and certain of
the Company’s credit and lease agreements. The policies principally provide coverage for public and
passenger liability, property damage, cargo and baggage liability, loss or damage to aircraft, engines, and
spare parts, and workers’ compensation.
Following the terrorist attacks, commercial aviation insurers significantly increased the premiums
and reduced the amount of war-risk coverage available to commercial carriers. The federal government
stepped in to provide supplemental third-party war-risk insurance coverage to commercial carriers for
renewable 60-day periods, at substantially lower premiums than prevailing commercial rates and for levels of
coverage not available in the commercial market. In November 2002, Congress passed the Homeland
Security Act of 2002, which mandated the federal government to provide third party, passenger and hull war-
risk insurance coverage to commercial carriers through August 31, 2003, and which permitted such coverage
to be extended by the government through December 31, 2003. The Emergency Wartime Supplemental
Appropriations Act (see Note 3 to the Consolidated Financial Statements) extends the government's mandate
to provide war-risk insurance until August 31, 2004, and permits such coverage to be extended until
December 31, 2004. The Company is unable to predict whether the government will extend this insurance
coverage past August 31, 2004, whether alternative commercial insurance with comparable coverage will
become available at reasonable premiums, and what impact this will have on the Company’s ongoing
operations or future financial performance.
Frequent Flyer Awards
Southwest's frequent flyer program, Rapid Rewards, is based on trips flown rather than mileage.
Rapid Rewards Customers earn a flight segment credit for each one-way trip flown or two credits for each
round trip flown. Rapid Rewards Customers can also receive flight segment credits by using the services of
non-airline partners, which include car rental agencies, hotels, and credit card partners, including the
Southwest Airlines Bank One (formerly First USA (R)) Visa card. Rapid Rewards offers two types of travel
awards. The Rapid Rewards Award Ticket (“Award Ticket”) offers one free roundtrip travel award to any
Southwest destination after the accumulation of 16 flight segment credits within a consecutive twelve-month
period. The Rapid Rewards Companion Pass (“Companion Pass”) is granted for flying 50 roundtrips (or 100
one-way trips) on Southwest within a consecutive twelve-month period. The Companion Pass offers
unlimited free roundtrip travel to any Southwest destination for a designated companion of the qualifying
Rapid Rewards member. In order for the designated companion to use this pass, the Rapid Rewards member
must purchase a ticket or use an Award Ticket. Additionally, the Rapid Rewards member and designated
companion must travel together on the same flight.
Trips flown are valid for flight segment credits toward Award Tickets and Companion Passes for
twelve months only; Award Tickets and Companion Passes are automatically generated when earned by the
Customer rather than allowing the Customer to bank credits indefinitely; and Award Tickets and Companion
Passes are valid for one year with an automatic expiration date. “Black out” dates apply during peak holiday